The news agency Bloomberg reported that the E.U. has ordered a “fast-track” investigation of the U.S. taxation practices in the light of the E.U. initiative to create a list of non-cooperative tax jurisdictions (the so-called “E.U. black list of tax havens ”). According to Bloomberg, the Organisation for Economic Co-operation and Development (OECD) was requested by the E.U. to investigate the recent U.S. tax reform and assess whether the U.S. adheres to the international tax transparency standards. In addition, the OECD is entrusted to check whether the U.S. fulfils the criteria of a tax haven. As a result, the U.S. may be included in the blacklist and face sanctions as well as reputational harm.

The issues

The issue that raises significant concerns for the E.U. is that the U.S. does not provide foreign governments with bank account details of non-U.S. citizens holding bank accounts in U.S. banks. If, prior to June 2019, the U.S. (i) fails to provide such information and (ii) refuses to implement other transparency criteria set by the European Commission, it may be blacklisted by the E.U. as a non-cooperative tax jurisdiction.

Also, the new U.S. Tax Act 2017 that cut the corporate tax from 35% to 21% has been monitored by the E.U. closely in the last few months. According to the E.U., the new U.S. tax law contains several provisions that may be in conflict with the international tax rules. For example, the newly introduced base erosion and anti-abuse tax (BEAT) applies only to payments made to foreign-related parties, and does not concern the same payments made to U.S.-related parties. Similarly, it is questionable whether the deduction for foreign derived intangible income and the taxation of such income at 13,125% complies with the Base Erosion and Profit Shifting (BEPS) rules.

U.S. response

In its letter addressed to the E.U., the U.S. Treasury Department disclaims its role as a tax haven. In addition, the U.S. states that, by ordering such an investigation, the E.U. undermines U.S. international efforts to increase its tax transparency, such as taking the leading role in creating the inclusive OECD framework for BEPS and maintaining original membership in the Global Forum on Transparency and Exchange of Information for Tax Purposes. Also, the U.S. criticises the inclusion of American Samoa and Guam into the E.U. blacklist because, according to the U.S. Treasury Secretary Steven Mnuchin, “there is no basis for concluding that American Samoa and Guam have any role in promoting the evasion or avoidance of taxes imposed by European Union member states.”

It is worth mentioning that the E.U. regularly reviews and amends its black list of tax havens. The Caribbean islands of Bahamas and St. Kitts have been recently removed from the list and put in the grey zone for further observation as the islands have committed to bring their tax rules in line with E.U. standards.